The Case of Club Intrawest

On November 25th, 2015, Intrawest ULC announced the sale of its interests in the 22,000-member timeshare called “Club Intrawest” to American-based Diamond Resorts International (DRI).

Intrawest created the club in 1993 as a Delaware non-stock non-profit corporation, to generate revenue and cash flow from its real- estate properties (~ $1B total). Instead of developing condominiums for outright sale, Intrawest elected to sell points-based vacation ownership intervals (VOIs) to families looking for flexible vacation opportunities. Unlike deeded timeshares, where the consumer purchases a unit for a specific week of the year, points can be used as a form of currency to buy room nights. Instead of being locked into the responsibilities of a cottage or a week, families can use their points when, where and how they want, in essence sharing their piece of real-estate with others. 

When Intrawest launched Club Intrawest, the internet was just making its way into the public domain and online shopping was unheard of. Families were willing to pay $15,000 for 120 points (now ~$25,000) for about 7 to 10 room nights at the club’s resorts in Tremblant and Whistler, and later Vancouver, Blue Mountain, Panorama, Sandestin, Palm Desert, Ucluelet and Zihuatanejo.

Canadians and visitors to Canada, some of whom took on loans at ~ 12% interest (provided by Intrawest), were willing to pay the annual dues, given the superior quality, size and location of the properties, and the idea that they owned a piece of real-estate. Intrawest made money not only from the initial sale of points and the associated loan portfolio, but also as the manager and declarant of Club Intrawest. Following US timeshare legislation, they gave themselves power to increase dues, rent out room nights, and essentially make all club decisions, even though, by 2005, they owned only 5.2% of the 3.2 million points.

How did Intrawest gain control of a club that wasn’t theirs? As is common in the industry, Intrawest developed over 500 pages of complex rules and procedures (and 19 amendments) that gave them (as the club’s declarant) 15 times the voting power over members, along with the right to place 3 of their own employees on the club’s 5-person board of directors. By creating a separate entity, Intrawest was able to pursue a 100% occupancy rate on properties that they did not own, but controlled and managed, thereby reducing their financial risk while providing significant one-time (points sales) and recurring (club operations) revenue streams.

But then the 2008 economic down-turn hit, while online shopping took off. Families had less disposable income along with access to online vacation services (e.g. Expedia, and now Airbnb) that lowered the overall cost of holidays. With an increasingly educated consumer, the timeshare product became less attractive to young families. Intrawest, therefore, continued to target the older, more affluent consumer, who arguably had less time and inclination to shop on the internet. Point sale growth, however, stagnated. Intrawest, now owned by U.S. hedge-fund manager, Fortress, was not able to meet revenue targets and became saddled with too many points and the associated dues. So they went looking for a buyer.

Finally, seven years later, Intrawest convinced DRI to buy the timeshare operation for $85M, which included a bucket of points, a loan portfolio and a management contract (of the 9 Club Intrawest properties). But why would DRI want such a business?

DRI is part of a large group of U.S. timeshare developers (e.g. Marriott, Hilton, Westgate, etc..) many of whom have moved to points-based timeshare offerings. Unlike most developers, DRI does not develop properties themselves. Instead, they leverage economies of scale to become managers of nonprofit timeshare clubs (like Club Intrawest). DRI not only took over the management of the club, but also obtained ~4% of the current 4.3 million club points (that represent the 9 Club Intrawest properties), along with the associated role of declarant, with 15 times the voting power.

As the manager and declarant, DRI can raise annual dues by up to 20%, swap properties in and out of the club’s trusts, restructure the value of points per night, add additional properties into the trust (to obtain more points), disallow members from selling their membership below a set value (e.g. $50 per point) and force members to pay their dues on an annual basis, even if the points go unused.

Timeshare developers may claim that the timeshare industry is structured to protect the consumer, through lobbying by organizations such as the American Resort Development Association. These organizations, however, are funded by the developers and have resulted in legislation that protects the developer’s business model. Members are locked in to a lifetime membership and annual dues that, under the developer’s direction, could become more expensive than the annual vacations themselves. Through their self-provided powers, the timeshare developers can cancel annual meetings, block members from communicating with each other, prevent members from reviewing club documents, and raise dues without clear justification. Members in distress often have no other option but to pay the developer to take back their points, which the developer, in turn, sells all over again.